An atmosphere of constant struggle to keep pace with the economy

- The Reserve Bank is expected to raise interest rates every quarter of the next financial year

The country's economy is struggling to regain its momentum in the last six months of the financial year 2020-21. Current sentiment shocks are likely to remain temporary. High prices of raw materials are making it difficult to pass on the cost of output due to weak demand, RBI Governor Shaktikant Das observed at a meeting of the RBI's Monetary Policy Committee.

The high rates of inflation in May and June fueled the debate over providing the right monetary policy. Two conditions are being observed to date. On the one hand, to maintain monetary policy to support the economy and on the other hand, to monitor any inflationary pressures and steady rise in prices so that retail inflation can be brought back to 5 per cent without any disruption, Das observed in the minutes of today's MPC meeting. Has been noted.

There are still many weaknesses in the economy. Domestic demand is rising, but at a slower pace. Some steps have been taken by the government to meet the inflationary pressures, but much more remains to be done. Although investment demand is still sluggish, the increase in capacity utilization and the long-awaited flexible monetary policy are seen setting the level for improvement.

The Consumer Sentiment Index (ICS) was up 10.50 per cent at 9.10 per cent in July. However, the index is still half of Corona's previous level, the Center for Monitoring Indian Economy said. In February 2020, the index was 102.60. It was seen in May this year.

In the five months from December last year to April this year, the July average was even lower than the monthly average of ICS. The first two weeks of August have not been good in terms of consumer sentiment. It had declined by 1.50 per cent in the first week of August and by two per cent in the second week.

The Reserve Bank will start raising interest rates from the first quarter of next financial year and will continue to raise interest rates in each of the remaining three quarters, according to a report by Morgan Stanley. With the rise in interest rates, the Reserve Bank will start normalizing monetary policy again. From the beginning of the next financial year, Australia, South Korea, Indonesia and Malaysia will also begin to normalize policy in these four countries. These countries will either withdraw from the bond-buying program or cut interest rates.

The report predicts that central banks in the Asia region will move towards phased normalization of monetary policy as a result of strong recovery and rising demand. The biggest risk is rising inflation, which will force different countries to take action. In the US, analysts believe that the Federal Reserve will begin withdrawing stimulus from the end of this year.

A weaker-than-expected weakness in China's economy in July could threaten the recovery of the global economy. The spread of the Delta virus is breaking the supply chain and shaking consumer confidence. The new variant of the Corona has had an impact on retail sales due to new restrictions imposed in China. In addition, the flood situation and the shortage of chips have affected auto production, which has led to a decline in sales. According to analysts, the property market in China is slowing down, which could lead to a decline in steel and cement demand, said an analyst overseeing China's economy.

The level of consumer confidence in the US has fallen to a decade low and with increasing pressure on the supply chain in Southeast Asia, there are indications that a weakening in China's economy could pose a threat to the global recovery of the contagious Delta virus.